10 Tax-Saving Strategies When You Take A Home Loan

Thinking of buying a home but lacking sufficient funds? Don’t fret. With a Home Loan, you can get your dream home in a few days. You can also enjoy tax-savings on Home Loan. In addition to the tax benefits, this loan can help you build an appreciating asset at a lower home loan interest rate. 

However, not everyone knows about the optimal loan amount and tenure to maximise their benefits while minimising costs and repayment time. Thus, it’s essential to use this tax-saving strategy wisely, as there are limitations to its effectiveness. 

To optimise your tax-savings through your Home Loan, here are some tips to help you out:

1. Tax-saving under Section 80 C

Repaying the principal amount on a Home Loan provides tax benefits under Section 80C of the Income Tax Act. You can save up to Rs 1.5 Lakh from your taxable income annually, including registration fees and stamp duty. 

This tax saving on Home Loan can only be claimed once, once the property is entirely constructed. However, if you sell the property within five years of possession, any tax deduction claimed will be reversed

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2. Tax deductions for rented properties

Interest on Home Loans for a rented-out property or a second house is fully tax-deductible, including post-construction interest and one-fifth of pre-construction interest for the current year, subject to conditions.

3. Tax-saving under section 24

Under Section 24 of the Income Tax Act, you can claim tax deductions on the interest paid on your Home Loan. If the property is self-occupied, you can claim a maximum deduction of Rs 2 Lakh from your gross income annually. However, if you own two homes, your combined deduction cannot exceed Rs 2 lakh in a fiscal year.

4. Tax-savings on interest paid for the pre-construction property

If your property is under construction and still paying EMIs, you can claim interest on your Housing Loan as a deduction after the building is completed. The Income Tax Act of 1961 allows for determining both pre-construction and post-construction period interest. 

The interest in the pre-construction period can be claimed as a deduction in five equal annual instalments, beginning from the year the construction is completed. 

5. Tax-saving under Section 80EE

Under Section 80EE of the Income Tax Act, first-time home buyers can avail an additional tax deduction on the interest paid on their Home Loan subject to the following Home Loan documents list:

• The property cost must not exceed Rs 50 Lakh, and the loan amount must be up to Rs 35 Lakh.

• The loan must be sanctioned between April 1, 2016, and March 31, 2017.

• The deduction can be claimed until the loan is fully repaid.

• This deduction is applicable from the financial year 2016-17 and onwards.

6. Tax-savings under Section 80 EEA

Section 80EEA of the Income Tax Act provide an additional tax deduction of up to Rs 1.5 Lakh on the interest paid for a Home Loan, subject to the following home loan documents list:

• The taxpayer must be a first-time home buyer and take a loan from a financial institution or housing finance company to purchase a residential house.

• The loan must be sanctioned between April 1, 2019, and March 31, 2022.

• The stamp duty value of the property should not exceed Rs 45 Lakh.

7. Income tax deduction for a first-time buyer

Section 80EE provides a tax deduction of up to Rs 50,000 to first-time homebuyers in addition to the Section 24 interest deduction. The conditions include that the loan amount must not exceed Rs 35 Lakh, the property value must not surpass Rs 50 Lakh, and it must be the buyer’s first house purchase.

8. Tax-savings for Joint Home Loans

If you take out a joint Home Loan, both borrowers can claim tax deductions on their interest payments up to Rs 2 lakh under Section 24(b) and principal repayments up to Rs 1.5 Lakh under Section 80C. 

9. Tax-savings for a Second Home Loan

If you decide to purchase a second house and take out a Home Loan, you can claim tax benefits on the payable interest amount as per current provisions. The total amount of interest paid can be claimed as a deduction under the Income Tax Act 1961. 

10. Deduction for Stamp Duty and Registration Charges

You can claim a deduction for stamp duty and registration fees under Section 80C up to a maximum of Rs 1.5 Lakh. However, this deduction can only be claimed in the year these costs are incurred.

Conclusion

Owning a home may seem financially difficult, but the tax benefits available to homeowners can provide significant savings.

Visit: https://www.kotak.com/en/personal-banking/loans/home-loan/eligibility.html

By planning and taking advantage of tax deductions and benefits available under the Income Tax Act, you can save thousands of rupees on your taxes. So if you’re considering purchasing your dream home, consider the tax benefits and plan your taxes accordingly.